In Class Practice Questions_Economic Growth

In Class Practice Questions_Economic Growth - In Class...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
In Class Practice Questions Economic Growth 1. Consider an economy described by the production function Y = F(K,L) = K 0.3  L 0.7 a. What is the per worker production function? To derive the per-worker production function   f(k) , divide both sides of the production  function by the labor force  L : Rearrange to obtain: Because  y = Y/L  and  k = K/L , this becomes: y = k  0.3 . b. Assuming no population growth or technological progress, find the steady  state capital stock per worker, output per worker, and consumption per  worker as function of saving rate and depreciation rate.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
c. Assume   = 10% per year. Make a table showing steady-state capital per δ   worker, output per worker and consumption per worker for saving rates of 0  percent, 10 percent, 20 percent, 30 percent and so on. What saving rate  maximizes output per worker? What saving rate maximizes consumption per  worker?
Background image of page 2
d. Use calculus to find the marginal MPK. Add to your table the MPK –   for δ   each of the saving rates. What does your table show? Note that y = k     0.3     , hence, MPK = 0.3k     0.3     / k = 0.3/k     0.7     2. Solow Growth Model. In the country of Akinback, an economy that can be  described by the Solow Growth Model, income-per-worker is falling. Suddenly,  a highly contagious disease kills one half of the younger workers in the labor  force. The disease then quickly disappears. Other workers were not affected by  the   disease.   Depreciation   rates   were   not   affected.   However,   in   Akinback, 
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
younger   workers   have   more   job   skills   and   higher   saving   rates   than   older  workers. a. Based only on this information, use a Solow Growth Model diagram to accurately  and clearly show the following. Also provide economic explanations. i. The economy’s initial economic situation,
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 8

In Class Practice Questions_Economic Growth - In Class...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online